Forecasting and trading credit default swap indices using a deep learning model integrating Merton and LSTMs

•Integrating financial conditions with LSTM improves CDS forecasting performance.•Merton-LSTM outperforms GRU, SVM, MLP and stochastic series model in forecasting CDS.•The Merton-LSTM trading strategy eclipses other tested trading strategies.•The superiority of the Merton-LSTM model proved in long-term prediction.